Copper futures rise on Vedanta plant closure

KOLKATA | MUMBAI: The impact of Tamil Nadu government’s decision on Monday to order the permanent closure of Vedanta’s copper smelter at Tuticorin was reflected in an increase in the intraday copper futures price on the Multi Commodity Exchange (MCX) on Tuesday with a depreciation of the rupee against the US dollar adding to the spike. While 3-month rolling forward copper on London Metal Exchange (LME) was flat at $ 6,856 a tonne, the near-month contract on MCX traded up 1 per cent at Rs 464 a kg.

Analysts remained divided on the reason behind the differential in MCX and LME prices. According to Gnanasekar Thiagarajan, director at Commtrendz, the differential was an “indication” of markets beginning to factor in supply pressure from the closure of the Tuticorin plant. On MCX, the top 10 clients on the buy side held 8,910 contracts Monday while the 10 clients on the sell side held 5,365 contracts.

With Vedanta accounting for nearly a third of the country’s copper supplies, the shutdown will drive up copper prices at a time when domestic copper demand is showing a firm uptick. India’s copper consumption has been growing at an average annual rate of 5.9 per cent in the last 10 years led by electrical and transport sector needs.

However, Rahul Kalantri, VP, Mehta Commodities, said MCX copper had bounced back after hitting a two-week low of Rs 452 on Monday and could see some profit booking at higher levels. He also felt the rise in local copper prices was led by a weaker rupee, since copper is denominated in US dollars.

Commenting on the developments, Kishor Ostwal, chairman CNI Research said the Vedanta facility could be staring at a long drawn legal wrangle to resolve its environment issues. “It looks like this could take 3-6 months to get resolved. Ahead of the general elections, the plant’s problems have become a political issue. Hence, investors are not likely to remain bullish on the stock.”

Analysts said they would like to wait and see if the long side contracts rise substantially in the coming days as the present arrangement could be that those having exposure to copper as a raw material could be hedgers (buyers) on the futures market. If futures prices fell, the lower price on the spot market, from where the hedger buys, would offset the loss on the futures market.